For roughly 10 days every March, Austin--a city known for its idyllic river scenery and world-class barbecue--becomes the world's biggest petri dish for just about every tech-centric phenomenon.

The music and tech festivals of  South by Southwest--SXSW to one and all; the latter events started on Friday--bring more than 100,000 people to Austin. They're the kinds of people who use Snapchat filters to communicate, and who book everything from their dog-walker to their line-waiter (yes, for waiting in lines) through an app. They're staying in a HomeAway rental. They're grabbing a Lyft to the after-party.

Even before one considers the annual influx of rockers and hackers, Austin is "the fastest-growing big city in the country, at the top of lists for things that can be measured (real estate and jobs) and things that can't (cool and kicks)." That's from Texas Monthly, which recently published a piece on Austin's transformation from sleepy, artsy stoner haven in the '70s and '80s to what it is today--in part, the tech-friendly "City of the Eternal Festival."

It's a progressive city for business, too. The Kauffman Foundation recently deemed Austin's metro area the country's top spot for startup activity. It has sprouted companies such as Dell and Bazaarvoice. And today Austin is home to new startups such as Cratejoy, a subscription-box service, and Favor, a local-delivery service. There's an office of the enterprise-software upstart called Sprinklr, with more than $100 million in venture-capital investment fueling more than 500 employees. The big guys in tech have already moved in to tap local talent: There are massive Under Armour and Facebook offices, and Apple and Samsung own more than 3.4 million square feet of corporate space.

As any resident will tell you--with either wonderment or dismay, or some mix of the two--the town is really exploding. "I've been here 15 years and things are the best they've ever been, and they're only getting better," says Joshua Baer, the founder executive director of the Capital Factory, a startup incubator in downtown Austin, about the tech scene.

He takes a breath, and, considering why we're on the phone, it's understandable. "That's ironic," he says.

Ironic because, well, here's where things get odd. For instance, late last month, this conversation happened on Twitter:

How did we get to a place where the home of Dell Computers, and where companies such as Twitter and Foursquare got their start at SXSW, is being called "hostile" to startups? How did we get to a place where a prominent venture capitalist-- Mike Maples, a managing partner at venture-capital firm Floodgate and a former Austin resident--publicly announces that his firm has a moratorium on working with certain Austin-based companies?

We got there because Austin, despite its reputation and history, has an awkward-at-best relationship with the sharing economy and the on-demand economy. Its main decision-making body, its city council, has questioned early and often whether new sharing-economy entrants in formerly highly regulated industries deserve a bit more scrutiny and regulation. In particular: home-renting enablers such as Airbnb and HomeAway, and transit companies such as Uber and Lyft.

Of course, Austin isn't alone: plenty of other cities across the country have raised questions as the richly funded venture-backed upstarts roared into their streets and homes. (Shouldn't home-renters be paying hotel taxes? What about the old hotels and cab companies we've worked so hard to support? Who is insuring these new Uber drivers? Shouldn't they be required to pass more background checks?) But it is unique in that all this is happening right now, in such a tech-forward city, courtesy of a unique political circumstance.

Fingerprints and party houses

Ride-hailing apps are relative newcomers to Austin, because the existing slate of regulations prohibited their local launches for years. Even two years ago at SXSW, the tech kids and venture capitalists flying into Austin were met by zero Ubers at the airport--so to help those accustomed to pushing a button for a ride, Uber enlisted pedicabs to work downtown. In 2014, the council allowed Uber and Lyft to operate in Austin, but after a year, it came to light that seven separate sexual-assault complaints were filed with police against drivers from these companies. (In the same period, three were filed against local taxi drivers, also according to local NBC affiliate KXAN.)

The council's Mobility Committee proposed late last year adding fingerprint-based criminal background checks for drivers--and a 1 percent fee on revenue that would go to the city. The council passed it. But the companies fought back. Uber had already been running a video campaign called "Don't Take Away Uber," and helped collect more than 65,000 citizen signatures, at which the council threw the whole thing to a public referendum. That vote--over whether to institute some fingerprint-based criminal background checks for some drivers, and to tack on the 1 percent fee to Uber and Lyft's revenue--is scheduled for May 7.

Uber and Lyft see this as such an assault that the normally hostile rivals are actually working together: They've formed a PAC to raise awareness, and claim they'll pull out of the city if the referendum passes. 

Mayor Steve Adler has said he does not believe Lyft and Uber will leave Austin if the referendum passes. "The bottom line is, I did not want to choose and do not want to choose between two very real safety concerns," he told the University of Texas-Austin's KUT.org. "The safety of drivers, specifically women, driving in a car alone and the safety concerns associated with our community and a technology and device which is at least anecdotally taking impaired off of the streets." (Multiple members of the Mobility Committee on the City Council were contacted; none were available for comment.)

Dan Graham, the founder of Austin-based custom-printing e-commerce shop Buildasign, which is 10 years old and on track to bring in $100 million in revenue this year, says the debate over Uber in particular is both heated and complex. "You have this strong new-economy culture saying 'let's remove all obstacles from the sharing economy,'" he says. On the other side is a year of data showing several reports of sexual assault, which, naturally, led some council members and residents to want more safety protections in place when it comes to vehicles for hire.

Separately, but simultaneously, the city council has taken issue with home-rentals, particularly ones facilitated by Airbnb and HomeAway. Last month, it voted to limit a popular type of short-term rentals on Airbnb and HomeAway--the type where the host isn't living at home when the guests stay--and abolish them completely in six years.

Austin already requires these particular home rentals--called Type-2 STRs by the council--to register with the city, and about 400 home-listers have done so. The Austin Business Journal points out that the average booking for one of these is 2.7 guests. So on a night when all those homes hit that average, it's 1,080 people--which is roughly the size of a high-rise hotel at full occupancy. (This number alone ignites passions of certain residents, who are sick of seeing massive development envelop their downtown.)

HomeAway was founded in Austin and is still based there--but perhaps it faces a more difficult situation than Airbnb. It is popular locally, and some residents say it's particularly popular with full-home rentals--and also with owners who never live in the multiple homes they list on the service, which are the ones targeted by the Council measure. (HomeAway went public in 2011 and was late last year acquired by Expedia for a remarkable $3.9 billion.)

From the council's perspective, limiting and eventually banning full-home rentals is aimed at cracking down on "party houses": those rented by large groups that make a ruckus all night long while their neighbors--or you and your family--are trying to sleep. It's not just an issue in Austin. The New York Times reported at length about the neighborhood-by-neighborhood culture war in New Orleans over rowdy Airbnb guests, and the rising rental prices fueled by the growing numbers of such visitors.

Still, not everyone in Austin thinks this kind of regulation is worth their local representatives' time. "From the data I've seen, it's isolated incidents that seem like they could be controlled by police, not by legislation," Baer says. 

"We don't want to look inhospitable to these new economies," says Graham, who, along with Baer, has been consulting with Austin's mayor, Steve Adler. "I don't see it having a long-term detrimental impact on the city's reputation." 

But he also adds he believes it's "very important" for such concerns about the city's reputation "to be on council's radar as another variable for consideration on how to govern in these new types of economies that they've never had to deal with before." 

The quality-of-life question

If it wasn't already clear, this is not your average city council taking on Silicon Valley's behemoths. For what makes it unique, we need to turn back to the day in 2014 when a redistricting of the city council brought every single seat up for election--and completely changed the constitution of the council. The changes meant that rather than a general election in which all members were "at large"-- and represented the city as a whole--each member would now be elected by a newly zoned district.

That meant a slate of all new members of the council represented smaller and distinct groups of constituents--most of whom don't live in the bustling, startup-friendly downtown. These are the council members who, since 2014, have brought these challenges to some of Silicon Valley's biggest names--and also their hometown's HomeAway.

In doing so, they bring up a significant and familiar question for residents new and old: What do they want their now-booming city to look like in the near future? 

As the Texas Monthly just wrote:

It's all complicated, in other words, and it's not getting any less complicated anytime soon. In fact, over the past few months, the tenuous balance between an Austin that wants and needs the development a booming tech industry can provide and an Austin that wants to maintain control over how it's governed has grown from "cold war" to pretty friggin' hot. 

As Austin's May referendum on Uber approaches, key questions remain unanswered. One is: will the estimated 120,000 tech employees in Austin actually come out to vote?

But then there's the bigger one: Whom might the council take on next? 

Published on: Mar 14, 2016